Trying to understand Wall Street skeptics

Is Artificial Intelligence just another bubble? The answer seems to be “yes” for many technology stock analysts. Listening to tech company quarterly calls, we hear lots of skepticism and worry about technology companies and all the money they are spending on Artificial Intelligence projects.

Many of these analysts are 50 years old or older. Who is the 50-year-old stock analyst? He or she came to Wall Street just as the Dotcom bubble burst in 2001, and watching client assets collapse may have left lasting scars. “We won’t make that mistake again! Look out for the next bubble.”

Meanwhile, business managers and owners are committing billions of dollars to build data centers to take advantage of the AI boom. 

Who should we believe: the Wall Street technology analyst, or Larry Ellison at Oracle, who said two years ago, “Nobody is prepared for the tsunami that’s coming”? Should we believe the analysts or Elon Musk, who has pivoted away from electric cars and last year built the world’s largest data center in 122 days? In Memphis, TN, of all places.

Skeptics are worried that the billions being spent on AI will resemble the thousands of miles of fiber optic cable laid down in the late 1990’s in anticipation of massive growth in internet traffic. Most of that cable wasn’t used for years, and bankruptcies followed.

Is the current race to install data centers a similar mistake? We don’t think so.

Our methodology focuses on companies with great track records of growth, driven by very high returns on the business assets they oversee for fellow shareholders. Worrying that these highly successful business leaders do not understand what’s happening seems to us a colossal mistake.

Clients should know that we do not believe in the bubble theory found in many daily headlines. We think Larry Ellison is right—it’s probably more like a tsunami of demand.

Best regards,

Daniel A. Ogden